Executing an M&A process in India involves navigating a well-defined but demanding sequence of legal steps-from preliminary non-disclosure to the final exchange of consideration and regulatory filings. For a buy-side party, understanding each phase of the M&A process in India avoids deal collapse at advanced stages, reduces regulatory exposure, and protects against undisclosed liabilities. This guide covers the complete legal roadmap from the first document signed to the day of closing, including the regulatory clearances that are mandatory, not optional. The entire process for a mid-market deal in India typically spans three to nine months, depending on regulatory complexity.
The M&A process in India begins before any substantive commercial negotiation with the execution of a Non-Disclosure Agreement (NDA) or Confidentiality Agreement. Key provisions:
Coverage: The NDA should cover all information disclosed by the target and its affiliates, shareholders, and advisers-whether disclosed orally, in writing, or electronically. It should extend to the existence of the discussions itself (so-called “deal confidentiality”).
One-Way vs. Mutual NDA: A one-way NDA protects only the disclosing party’s information (appropriate when only the seller is disclosing information for due diligence). A mutual NDA protects both parties’ information (relevant when the buyer is also disclosing integration plans or proprietary bid models).
Standstill Clause: In acquisitions of listed companies or sensitive competitive information, the NDA may include a standstill provision preventing the buyer from acquiring shares in the target on the open market or approaching the target’s shareholders, employees, or customers during the exclusivity period.
Governing Law and Jurisdiction: Indian law and jurisdiction (Delhi, Mumbai, or relevant High Court) for domestic deals; Singapore or English law for cross-border transactions.
Step 2: Letter of Intent / Term Sheet, Binding vs. Non-Binding
The Letter of Intent (LOI) or Term Sheet sets out the key commercial terms agreed between the parties. A poorly drafted LOI can create unintended binding obligations or, conversely, fail to protect a buyer who has invested substantially in due diligence.
Typically Non-Binding: Headline valuation and purchase price, transaction structure (share purchase vs. asset purchase), form of consideration (cash vs. equity), representations and warranties, and indemnification terms are generally stated as indicative and non-binding.
Typically Binding: Confidentiality obligations (if not already in a separate NDA), exclusivity (the seller agrees not to negotiate with competing buyers for a fixed period), governing law and jurisdiction, and the process for terminating negotiations are usually expressed as legally binding.
Exclusivity: The buyer should negotiate a meaningful exclusivity period (typically 45-90 days) to conduct due diligence without competitive bidding. Sellers should limit exclusivity to the minimum needed and include break-fee provisions if the buyer terminates without cause.
Step 3: Legal Due Diligence
Legal due diligence is the systematic investigation of the target’s legal position and is the most critical phase of the M&A process in India. The scope of a buy-side legal due diligence typically covers:
- Corporate Diligence: Certificate of Incorporation, MOA/AOA, board resolutions, shareholder agreements (any ROFR or tag-along rights that must be waived for the sale to proceed), cap table verification, ROC annual filing compliance, any pending MCA notices.
- Title and Property: Registered sale deeds and encumbrance certificates for owned immovable property; lease agreements for leased premises (unexpired term, renewal rights, requirement for landlord consent on assignment triggered by a change of control).
- Intellectual Property: All IP registrations (trademarks, patents, copyrights, designs), IP owned vs. licensed, any disputes or third-party claims, and-critically-IP assignment agreements from all developers, freelancers, and employees to confirm that IP developed for the company is properly vested in the company.
- Employment and Labour: Employment contracts for key personnel, notice periods, non-compete and confidentiality provisions, PF and ESIC compliance, pending labour disputes, POSH committee compliance.
- Regulatory Licences: All licences and registrations required for the business (GST, shop and establishment, FSSAI, drug licence, sector-specific permits), status of each licence, and whether any change-of-control provision in a licence requires fresh registration post-acquisition.
- Litigation: Pending cases (buyer’s counsel should search eCourts, National Consumer Disputes Redressal Commission, and NCLT portals), regulatory investigations, show-cause notices, outstanding demands from tax authorities.
- Material Contracts: Change-of-control clauses in revenue-critical contracts (which may trigger counterparty consent or termination rights on the acquisition), loan covenants that are triggered by a change of control, and key customer or supplier agreements.
Due diligence findings are summarised in a Legal Due Diligence Report that identifies deal-critical issues, items requiring remediation before closing, and matters that should be reflected in the SPA as specific representations, indemnities, or price adjustments.
Step 4: Share Purchase Agreement, Key Provisions
The Share Purchase Agreement (SPA) is the primary transaction document. Its key provisions:
Representations and Warranties: The seller makes detailed representations about the target company’s corporate status, financials, IP, tax, employment, contracts, and regulatory compliance. The buyer relies on these in deciding to proceed. Breach of any representation gives the buyer a claim for indemnity.
Conditions Precedent (CPs): Events that must occur before the obligation to close arises. Common CPs: receipt of CCI approval (if applicable), shareholder/board approval, NCLT approval (if required under Companies Act, 2013 for mergers), no material adverse change (MAC), waiver of any ROFR or tag-along rights triggered by the sale. Closing cannot occur until all CPs are satisfied or waived.
Material Adverse Change (MAC) Clause: Permits the buyer to walk away from the transaction (or renegotiate) if an event between signing and closing causes a material adverse effect on the target’s business, assets, or financial condition. Drafting of MAC clauses in Indian SPAs closely tracks English law concepts; COVID-19 dispute experience has prompted more detailed MAC definitions.
Indemnification: The seller indemnifies the buyer for losses arising from breaches of representations and warranties, or from specific identified risks (tax demands, litigation contingencies). Key parameters to negotiate: (a) Cap (maximum liability of seller, often 100% of purchase price for fundamental reps, 20-50% for general reps), (b) Basket/Deductible (claims below a threshold, say 0.5% of purchase price, are not covered-reduces nuisance claims), (c) Survival Period (time after closing during which warranty claims can be brought-typically 12-24 months for general warranties, 3-7 years for fundamental warranties and tax claims).
Step 5: CCI Merger Notification
Under Sections 5 and 6 of the Competition Act, 2002, as amended by the Competition (Amendment) Act, 2023 and enforced from September 2024, certain combinations require prior CCI approval before closing. The M&A process in India must account for this timeline.
The transaction requires CCI notification if: (a) the combined Indian assets of the parties exceed INR 2,500 crore, or combined worldwide assets exceed USD 1.25 billion with Indian assets of at least INR 250 crore; or (b) combined Indian turnover exceeds INR 7,500 crore, or combined worldwide turnover exceeds USD 3.75 billion with Indian turnover of at least INR 750 crore. The 2023 Amendment also introduced a “deal value threshold” under Section 5(d): transactions where the deal value exceeds INR 2,000 crore AND the target has substantial business operations in India require notification regardless of the asset/turnover thresholds.
Green Channel: Eligible where the parties have no horizontal, vertical, or complementary overlaps. Deemed approved immediately on filing-no substantive review.
Form I vs. Form II: Form I for non-complex transactions (30 working days for CCI review); Form II for complex or potentially anti-competitive mergers (150 working days).
Gun-Jumping: Completing the transaction before receiving CCI approval is prohibited under Section 6(2). Penalty under Section 43A may reach 1% of the higher of the total assets or turnover of the combination. The transaction may also be deemed void.
Step 6: SEBI Takeover Regulations, When Applicable
The SEBI (Substantial Acquisition of Shares and Takeovers) Regulations, 2011 apply where the target is a listed company. An acquirer who acquires 25% or more of the shares or voting rights in a listed company is obligated to make a public announcement for an open offer to acquire a further minimum 26% from public shareholders. The open offer must be made at the highest of: (a) the negotiated acquisition price, (b) the volume-weighted average market price for 60 trading days before the announcement, or (c) the highest price paid by the acquirer in the 52 weeks before the announcement.
SEBI Takeover Regulations apply in full to the acquisition of control over a listed company even if the numerical threshold is not crossed-“control” has an expansive definition under the Regulations.
Steps 7 & 8: Closing and Post-Closing
Closing Mechanics: On the closing date, the parties exchange (a) a Conditions Precedent satisfaction certificate confirming all CPs are met, (b) consideration (wire transfer of purchase price or exchange of shares), (c) executed share transfer forms (SH-4), physical share certificates (if any), board resolutions of the target accepting the transfer, and (d) resignation letters and appointment resolutions for incoming directors.
Stamp Duty: Transfer of shares in unlisted companies attracts stamp duty at 0.015% of the consideration or face value, whichever is higher, under the Indian Stamp Act, 1899, as amended by Finance Act, 2019. Physical share certificates may attract higher stamp duty in some states.
ROC Filings: Form SH-4 (instrument of transfer), updated register of members, and MGT-14 (if board resolution alters authorised capital) must be filed with the Registrar of Companies.
Post-Closing: Integration planning, completion accounts (if applicable to determine any purchase price adjustment), and earn-out monitoring periods commence. Seller’s indemnity obligations run during the survival period.
Key Takeaways
- CCI notification (if thresholds are crossed) must be obtained before closing; gun-jumping under Section 6 of the Competition Act, 2002 attracts severe penalties.
- Change-of-control clauses in material contracts and licences must be identified in due diligence and remediated before or at closing.
- SPA indemnification terms-cap, basket, and survival period-directly determine a buyer’s ability to recover for post-closing discoveries.
This article is for informational purposes only and does not constitute legal advice. Readers should seek appropriate professional counsel for their specific circumstances.
META TITLE: M&A Process India: LOI to Closing Legal Steps Guide